Those who make private purchases of second-hand cars run the risk of having them repossessed by loan firms under legislation dating back to the Victorian times, the Law Commission has said.

Over the last 10 years there has been a substantial increase in so-called logbook loans, which allow people to borrow cash using their vehicle as collateral.

The legal reform body has suggested a new goods mortgages act to replace the current one, which it described as "archaic". The proposed legislation would protect buyers from losing their car to finance firms.

Currently, 'logbook' loans are regulated by the 1878 Bills of Sale Act and the 1882 Bills of Sale Act (1878) Amendment Act.

Such loans are registered at the high court, but those who buy a second hand car privately will find it difficult to check if their prospective vehicle is subject to such an order. The car can be repossessed if the original owner stops payments.

In recent years there has been a huge increase in bills of sale – which enable people to use possessions as security against loans. 3,000 occurred in 2001, rising to 37,000 in 2015, according to the Law Commission. The majority of bills of sale are used for logbook loans.

Stephen Lewis, the law commissioner for commercial and common law, said: “Borrowers are increasingly turning to logbook loans to raise cash, but many who default rapidly find themselves out of pocket and their vehicle repossessed. People buying second-hand vehicles understandably expect the law to protect them, but it is out of date and out of step with other consumer legislation.

“It is high time the law was reformed to bring protections to logbook loan borrowers and the unwitting purchasers who, in all good faith, buy second-hand vehicles that are still subject to these widely used and unfair loans.”

The Citizens Advice Bureau highlighted one case in which a recently purchased second-hand van went missing. The owner was eventually informed by police that it had been repossessed because the previous owner had taken out a logbook loan on it.